Recession Led to Changes in Retirement Planning

A 2009 follow-up survey of households that completed the 2007 Survey
of Consumer Finances (SCF) found changes in families’ savings
intentions or behavior, their tolerance for financial risk, and their
retirement planning.

In their report on the findings, released by the National
Bureau of Economic Research, members of the Board of Governors of the
Federal Reserve Board said overall, the data suggest a shift toward
caution: most families – especially those whose position in the wealth
distribution improved – reported a desire for less risk and for higher
reserve savings. Further, in most cases, heads of households that were
working full-time plan on extending their working lives.

For families headed by a full-time worker aged 63 or
younger in 2007 who was still working full-time in 2009, the median
change in the worker’s anticipated retirement age was zero across all
wealth change groups, but those workers who did shift their anticipated
retirement date tended to report that they would stop working full-time
at date later than what they had reported in 2007. At least 25% of
full-time household heads reported postponing retirement by two years.

The largest fraction of household heads who plan to stop
working two years earlier than planned in 2007 are the heads of
households who moved up the wealth distribution by ten or more
percentile points, according to the report.

The analysis of families’ reported willingness to take
financial risk in investing and saving suggests that the recession and
other economic developments may have led families to become somewhat
more cautious. Across the array of relative wealth changes, except for
families in the highest percentile-change group, more families were
unwilling to take any financial risk in 2009. The increases in this
proportion were roughly 5% to 6% for families whose rank rose or fell by
no more than ten percentile points, but the shift in the proportion of
families unwilling to take risk was twice as large for families that
moved down the wealth distribution by more than ten percentile points.

In addition, the analysis found that most families in each
of the relative wealth change categories reported greater desired
precautionary savings in 2009 than they had in 2007. Some families
reported much higher preferred buffer savings: nearly 30% of families
who moved up by three or more percentile points and nearly a quarter of
all other families reported desired precautionary savings that were at
least 200% higher in 2009 than in 2007.

The National Bureau of Economic Research working paper indicated
that the level of wealth fell between 2007 and 2009 for 63% of families,
and the median decline was 18% of 2007 wealth.

According to the report authors, a sizable fraction of
households experienced gains in wealth, and some families’ financial
situation changed little, at least on net, between 2007 and 2009.

The
largest median absolute losses were for families headed by persons in
the four oldest age groups, which also have progressively greater median
wealth. The variation in absolute wealth changes was greatest for the
55-to-64 group.

The report indicates that changes
in families’ wealth over the period appear to reflect changes in asset
values (particularly the value of homes, stocks, and businesses) rather
than changes in the level of ownership of assets and debts or in the
amount of debt held.

The aggregate share of the
primary residence as a fraction of total assets declined 1.5 percentage
points, and the share of stock and business equity fell by nearly five
percentage points. The ratio of total debt to assets, the leverage
ratio, rose by about 3 percentage points to nearly 18% over the period,
primarily due to a decline in the value of assets rather than an
increase in debt.